How Lawyers Deliver Their Services to Business

November 7, 2018

Why Law Firms Don’t Change Strategy Despite Client Dissatisfaction: A Management Explanation (Part 1 of 2)

On my drive to the office yesterday, I learned that the Chicago Blackhawks had fired Joel Quenneville, their head coach.

Three Stanley Cups, second winningest among 38 head coaches since its 1926 founding, best playoff record in club history. Replaced by 33-year-old Jeremy Colliton — former NHL and AHL star — current head coach of the Rockford IceHogs.

Lots of chatter over the merits. Great move. Terrible move.

But there’s no question about exactly who it was who’d made that decision: Not “Coach Q” himself.

Someone saw a problem with the team’s status quo — and made a decisive move in response.

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Last month GE ousted John Flannery as its CEO due to missed profit and cash targets.

And they replaced him with an executive from outside the company — a move not seen at GE for decades — if ever.

As with the Chicago Blackhawks, Mr. Flannery did not oust himself. GE’s board did that.

Someone saw a problem with the company’s status quo — and made a decisive move in response.

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When the men and women at the top of an organization see something wrong with the way that it’s coping with external realities — like customer satisfaction or shareholder support — they tend to make decisive moves like the Blackhawks or GE.

Law firms don’t respond that way.

October 8, 2018

Perverse Incentives: Law Firm Bills by the Hour — Court Cuts Its $1.8 Million Fee Down to $670,000 (Part 3 of 3)

by Joel A. Webber

This last of three posts about a 54-page opinion in which U.S. Bankruptcy Court for the Central District of Illinois Judge Mary Gorman explained her reduction of a nationally prominent law firm’s $1.8 million fee down to $670,000 offers a case study of the billable hour’s perverse incentives.

Today I address a case-study-within-a-case-study — a bill for $270,000 within the $1.8 million total sought by the law firm. Judge Gorman considered the wisdom of a law firm’s decision to pursue multiple litigations that — she believed — offered better odds to the lawyers of getting their hours paid than it offered to the client of getting recovery that would exceed those lawyers’ fees.

Judge Gorman’s case-study-within-a-case-study illustrates a critical drawback to use of the billable hour to price attorneys’ work:

Even when the client loses, the lawyers win.

Except in the unlikely event that the hourly bill is submitted for approval by someone with the legal sophistication — and firmness — of a reviewer like Judge Gorman, who cuts that $270,000 bill down to $80,748. But I’m getting ahead of the story.

October 5, 2018

Perverse Incentives: Law Firm Bills by the Hour — Court Cuts Its $1.8 Million Fee Down to $670,000 (Part 2 of 3)

by Joel A. Webber

The 54-page opinion in which U.S. Bankruptcy Court for the Central District of Illinois Judge Mary Gorman explained her reduction of a nationally prominent law firm’s $1.8 million fee down to $670,000 offers a case study of the billable hour’s perverse incentives.

Under “General Mistakes and Carelessness”, the Judge detailed important errors in the Law Firm’s fee statement.

Those errors show two consequences of using the billable hour to price lawyers’ services:

First, the “rack-em-up” focus on maximizing hours billed gives lawyers incentive to — knowingly or not — charge clients more than the work calls for.

Second, in the attempt to maximize those hours billed, attorneys can easily — intentionally or otherwise — obscure from the client’s view who-did-what-for-how-much.

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Four points among several Judge Gorman made here:

1. She called out the Law Firm for charging $234,450.50 for work they’d, “either not included in the billing invoices or … never actually earned”. After specific cuts, the Judge reduced the remainder of the $1.8 million requested by 20%.

October 3, 2018

Perverse Incentives: Law Firm Bills by the Hour — Court Cuts Its $1.8 Million Fee Down to $670,000 (Part 1 of 3)

by Joel A. Webber

On July 10, 2018 U.S. Bankruptcy Court for the Central District of Illinois Judge Mary Gorman issued a 54-page opinion explaining why she cut a law firm’s requested total hourly fee of $1.8 million down to an approved total hourly fee of $670,000.

Judge Gorman was responsible to approve or disapprove legal fees charged to the debtor by the debtor’s law firm because those fees are paid out of the bankruptcy estate’s assets.

The judge’s explanation of her drastic fee cut offers a case study in the perverse incentives of the billable hour.

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Notes on format and content:

1. The text in this and the following two posts doesn’t refer to the law firm or its attorneys by name — but to the Law Firm, or to Attorney A, Attorney B, etc. This post’s purpose is to make a point about cost control and management of legal work — not to embarrass anyone.

The Law Firm ranks among the American Lawyer magazine’s “AmLaw200” — the 200 largest U.S. law firms by gross revenue and other key metrics.

2. While I don’t wish to embarrass anyone, I do need to substantiate what I say by reference to objective sources. Therefore the law firm and lawyers named in Judge Gorman’s 54-page opinion can be readily identified in it. Also, I consulted other court filings on the electronic docket (pay wall) for In re: Earl Gaudio & Son, Inc. at Case No. 13-90942.

3. Unlike this blog, Judge Gorman’s opinion did not address the wisdom of pricing lawyers’ services by reference to billable hours versus an alternative fee arrangement. To the contrary, when a lawyer seeks approval of legal fees from a federal court, the billable hour is the standard because that is the conventional model of the legal profession. (I followed this practice myself three years ago after winning a judgment for my client in a civil rights lawsuit — because I had to.)

4. My argument is not that use of the billable hour necessarily leads to excess costs and wasted effort — but that it creates incentives that make those bad outcomes more likely.

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I begin with Judge Gorman’s summary offered at the end of her 54-page opinion — with underlined headings that I’ve provided:

Failure to “Focus on this Case as Required”

October 1, 2018

Businesses May Have Alternatives to Status Quo in Legal Services — Recent Moves by The Big 4 in the U.S. (Part 4 of 4)

by Joel A. Webber

With this post I conclude a 4-part analysis of positive alternatives to the status quo in legal services presented by the Big 4 accounting firms to U.S. businesses.

In Part 1 I addressed survey results from law firms in which 69% of responding law firm leaders reported that “partners [in law firms] resist most change efforts”.

The reason? 59% of responding law firm leaders stated that their partners “resist most change efforts” in the way they deliver services to clients, because:

“We are not feeling enough economic pain to motivate more significant change.”

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Businesses — speaking through 55% of chief legal officers surveyed — reported that they don’t negotiate better price and terms of service with their law firms because they:

“Believe that they do not have enough buying power to negotiate more effectively.”

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The fact that law firms report such complacency and that businesses feel stuck which what law firms are giving them prompts a question: Are there any good alternative sources of legal services available to U.S. businesses?

September 28, 2018

Businesses May Have Alternatives to Status Quo In Legal Services — Recent Moves by The Big 4 (Part 3 of 4)

by Joel A. Webber

Earlier this month Lucy Endel Bassli wrote an article entitled: “Big 4 Are Not a Threat. They are a Reality”.

In the post immediately preceding I described Ms. Bassli’s experience and credentials as former Assistant General Counsel of Microsoft and as founder of a new law firm and consultancy focused on innovation in the delivery of legal services. Her views depart from — and are better informed than — conventional wisdom.

Conventionally-minded business lawyers talk a lot about the “threat” that the Big 4 present to traditional law firms. By “threat” they mean future competition.

Ms. Bassli — based on firsthand experience buying and managing the work of law firms and other legal services providers — argues that the Big 4’s offerings for U.S. business are not confined to the future. They’re a present day reality.

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What follows are the first 5 of 10 attributes of Big 4 accounting firms’ offerings in legal services that Ms. Bassli identified:

September 26, 2018

Businesses May Have Alternatives to Status Quo In Legal Services — Recent Moves by The Big 4 (Part 2 of 4)

by Joel A. Webber

To summarize some of the positive alternatives that the Big 4 accounting firms offer U.S. business owners and executives in legal services, I’ve chosen the writings of a trusted guide — Lucy Endel Bassli.

In these writings she’s described how the Big 4 accounting firms offer choices to businesses in the U.S. that might well be more efficient — and for some jobs more highly skilled — than what traditional law firms and traditional in-house departments have to offer.

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When I first heard Ms. Bassli speak on these subjects at academic and legal conferences she was Assistant General Counsel of Microsoft — a business where she practiced in-house for 13 years.

Microsoft is — well — it’s Microsoft. And Ms. Bassli until January of this year was a senior leader of its legal department.

And in addition to being an iconic company, its legal department is a leader in innovation. For instance, a year ago Microsoft’s legal department announced that it was moving 90 percent of its outside counsel work away from hourly fees — toward alternative fee arrangements. This would be up from 55 to 60 percent at the time of the August 2017 announcement.

This at a time when — despite hype about alternative fee arrangements — the vast majority of law firms still bill by the hour.

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Earlier this year Lucy Endel Bassli left Microsoft to found InnoLegal Services, PLLC, with the following outlook:

September 24, 2018

Businesses May Have Alternatives to Status Quo In Legal Services — Recent Moves by The Big 4 in the U.S. (Part 1 of 4)

by Joel A. Webber

For business owners and executives in the U.S. who contend with increasing legal and regulatory demands — there’s good news. Through the Big 4 accounting firms you might find more efficient — and for some jobs more highly skilled — choices for the conduct of your company’s legal affairs.

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Most law firms seem complacent — and many of their business clients seem to feel stuck with what they get from those law firms. Consider:

The 2018 Altman Weil (consultancy to law firms and corporate legal departments) survey of law firm leaders reported:

“In 69% of law firms, partners resist most change efforts“.

Why do those partners “resist most change efforts”?

59% in those law firms answered: “We are not feeling enough economic pain to motivate more significant change.”

July 9, 2018

A Company’s Legal Health Calls for Skills that Attorneys Lack — Ron Friedmann’s Take

by Joel A. Webber

In a recent blog post Ron Friedmann responded to a question posed in a legal technology publication:

“‘How do you envision the legal team of the future changing?’ The thesis of my answer: multidisciplinary teams ….

” … The complexity of the modern world makes many problems multifaceted. How many ‘legal problems’ are really business problems with a legal element? Clients need lawyers to team with other professionals – and treat them as peers – for the best solution.

“A story from early in my legal market career illustrates the point. I had just arrived at a large firm to run practice support. A partner who knew I had a quant background asked me to help on a competition matter. A regional office of a regulator questioned our client’s action. It worried that many consumers would be adversely affected by a mistake it had made. I ran a simple time-series regression on the number of claimants to date. It showed a quickly diminishing curve. That is, a reasonable projection showed few new complaints would be filed. That one graph got the regulator to back off. That was a simple stats answer, not a legal’ answer.”

July 6, 2018

A Legal Veteran’s Recent Take on His Profession: “Too Many Awards — Too Little Legal Customer Satisfaction”

by Joel A. Webber

This past Monday (July 2) Mark A. Cohen wrote the following in Forbes online:

“Law is staging its own version of ‘every kid gets a trophy’ … Every week, all over the globe, the legal industry throws gala dinners to celebrate its ‘innovators,’ ‘visionaries,’ and ‘pioneers.’ These gatherings afford attendees a chance to dress up, schmooze with peers, feel important, and convince themselves that their industry is performing splendidly. Legal providers are hearing ‘Celebration’ while for buyers it’s ‘I can’t get no satisfaction.'”

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I met Mark Cohen a couple of months ago at a global conference on legal innovation sponsored by Northwestern University’s Pritzker Law School’s Center for Practice Engagement and Innovation where he is a Distinguished Fellow.

On one hand, he’s what I’d call “a lawyer’s lawyer”, with:

” … An international reputation as a ‘bet-the-company’ civil trial lawyer with stints as a decorated Assistant United States Attorney; BigLaw Partner; National Litigation Boutique Founder and Managing Partner; Federally-appointed Receiver of an international aviation parts business conducting operations on four continents; and outside general counsel to three insurance companies.”

But this “lawyer’s lawyer” also founded and managed two entrepreneurial companies before advising law firms and law departments on improving their services delivery: